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With all the changes currently facing farming, eg. new planning permission guidelines, the need for increased diversification; the Agriculture Bill promoting delivery of “public products” together with recent significant tax tribunal cases, such as Vigne and Graham, the farm probate valuation has and will become much more complicated.

The revised National Planning Policy Framework (NPFF2) was released on 24 July 2018 and indicates increased planning opportunities for the farming industry. In the recent case of P Palliser v CRC Upper Tribunal (Lands Chamber) “hope value” and “potential development” was considered at length. The Upper Tribunal (Lands Chamber) did not agree that hope value should have been excluded. On whether the property had hope value, the tribunal said it was marketed as in need of modernisation and ‘had great potential’. Given that the ‘potential’ constituted hope value, the Lands Chamber agreed that this should be included.

It would seem that the NPPF2 guidelines will increase the need for probate valuers to consider the potential for development value in the light of the revised framework and the Palliser case. A detailed review of the farm and any planning reports that have recently been prepared will be required.

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Many farmers have turned to diversified activities away from pure farming with an emphasis on more ‘investment’ activities. Such a move often happens later in life. Although business property relief (BPR) applies to the two years before death, there has always been a positive approach in these cases to report the whole history of the farm trade on the IHT400 so that the business matrix can be explained. If the executors and their advisers push to emphasise an area of understanding of the farm this must be accurate. It is more difficult for probate valuers to see obvious inconsistencies without full information from the farming partners.

No ‘Bright Line’

Two recent inheritance tax cases at the tax tribunal have shown that there is no ‘bright line’ distinguishing between what HMRC considers to be investment activities and business activities. The cases are Graham (Grace Joyce Graham (Deceased) v HMRC [2018] UK FTT 0306 (TC)) on holiday accommodation and Vigne (HMRC v the personal representatives of the estate of M Vigne [2018] UKUT 357) on DIY (or enhanced) liveries. Such decisions make the work of the probate valuer more complex as the information contained in the valuation will be looked at in detail by HMRC when assessing this bright line’ or what some consider an ‘invisible line’.

The ‘precision and research’ of the facts supporting the farm valuation are paramount. The farm probate valuer must not just be ‘fed information’ by farming family members wanting to reduce the IHT liability, such details must be accurate as they will be checked. The facts of the farm valuation should be translated onto the IHT400 (the inheritance tax account). The probate valuation should be consistent and cross-checked with information contained within the IHT400 on the whole running of the farm.

Many executors are unaware of the importance of the declaration associated with the IHT400 and how important it is that they check the valuation. It is important for farm advisers to understand the elements of the declaration included on the IHT400. I set out the elements of the declaration of the IHT400 which are as follows:

“To the best of my/our knowledge and belief, the information I/we have given and the statements I/we have made in this account and the schedules attached (together called ‘this account’) are correct and complete.

I/We have made the fullest enquiries that are reasonably practicable in the circumstances to find out the open market value of all the items shown in this account.”

Fullest Enquiries – “deliberate concealment”

The role of the executor and valuer should be a “holistic approach”. “Fullest enquiries” should involve full and detailed checking of information supplied by other advisers. Simple cross-checking to Accounts, BPS subsidy applications and other details is essential.

There is currently so much change in farming.The recent Agriculture Bill with the delivery of “public products” such as countryside access will make the role of the probate valuer even more testing. Is there a risk, therefore, of ‘deliberate concealment’ when the valuer, who has no tax qualification, forms an opinion on eligibility for agricultural property relief (APR) and sometimes even BPR and includes this in the valuation? With all the changes that the farming industry is faced with, including a future of farming “without subsidies” and increased diversification, the roles of farm valuer and farm executor have become complex, in an almost ‘dangerous’ process.Farm valuers were trained in agriculture and not such extensive diversification so it is key that all valuers equip themselves with full information around any diversification.

Julie Butler F.C.A. qualified as a Chartered Accountant in 1980 and started Butler & Co in 1986. Julie is a farm and equine tax expert and is the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine Tax Planning ISBN: 0406966540, and Stanley: Taxation of Farmers and Landowners (LexisNexis).